Shopping for the perfect life insurance policy? We get it, it can seem like there are endless options: you have to make the choice between term life insurance and whole life insurance, as well as research everything in between. But while you’re looking into all of these types of policies, you might want to take a look at one that sometimes gets overlooked: variable life insurance. This is a type of permanent life insurance policy with a cash value that is based on how much you pay in premiums, the policy’s fees, and the performance of investment options. If this type of life insurance policy sounds interesting to you, you should first know exactly how the cash value works, how the death benefit is paid out, and how flexible these policies are.
What Is A Variable Life Insurance Policy?
A variable life insurance policy is a permanent policy that offers life-long protection as long as you pay your premiums. Each policy will have three main components: the death benefit, the cash value, and the premiums. The death benefit is what your beneficiaries will receive once you pass. Your premiums, which are the monthly payments you make to maintain your policy, will partially go towards the cost of insurance and fees, while the remainder will go towards the policy’s cash value, or a tax-deferred savings account, which you can invest in different sub-accounts that resemble mutual funds. You have the freedom to monitor and make decisions on where to allocate your funds over time.
If your cash value performs well, you can either use it to increase your death benefit, or withdraw it as cash to use when necessary. It is important to note, though, that if your investments do not perform well, you could end up losing money.
The death benefit for this type of policy is normally distributed in one of two ways:
- Level death benefit – This means that the death benefit is equal to the face value of the policy when you purchased it.
- Face amount plus cash value – This kind of policy will cost more, but your beneficiaries will receive your cash value in addition to the policy’s face value.
Pros Of Variable Life Insurance
There are many reasons why people choose a variable life insurance policy, including:
- Permanent life protection
- Adjustable premiums– If you are having a tough month and cannot afford your life insurance premium, you have the ability to skip a payment or stop paying your premiums if the cash value of your policy can cover the costs.
- Investment options with more growth potential- You can invest the cash value in dozens of sub-accounts that offer different investment options. The investments are tied to the financial market, so as the stocks go up, so does your cash value accumulation.
- Flexible death benefit– You have the ability to increase or decrease your coverage over time based on your specific insurance needs.
- Ability to borrow from the policy– You can withdraw funds or take out a loan against the tax-deferred earnings.
Cons Of Variable Life Insurance
All permanent life insurance policies come with fees, but one of the downsides to variable life insurance is that it tends to have the highest fees out of all of the types of policies. In addition to that, other cons of variable life insurance policies include:
- You will have to monitor your own investment options, instead of the insurance company doing it for you
- If you take out a loan or withdraw money greater than your cash value, your death benefit could be reduced or your policy will face tax consequences.
- If you make a withdrawal during the first several years that your policy is in effect, you will have to pay surrender charges.
- These policies are more expensive than term life insurance policies.
Is It Best For You?
While there are some risks involved in this type of policy, it is the best life insurance option in terms of long-term investment. Variable life insurance is a good choice for someone who is looking for a permanent life insurance policy that will allow them to accumulate a cash value, or for someone who wants control over their investment options, as well as the freedom to make decisions about where to allocate their funds – but it is only for people who have the income to pay the premiums for the remainder of their life.
If you can afford this type of policy with the higher risks involved, it could be worth it. If you want cheaper coverage with more of a guarantee, though, a term life insurance policy might be better for you, because of the affordable premiums and the ability to convert your policy into a permanent life insurance policy. The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.
